Third Quarter FY 2014 FCS Survey

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original report.
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Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
Third Quarter Fiscal Year (FY) 2014 Summary Report
(April 1 – June 30, 2014)
OFFICE OF INSPECTOR GENERAL’S (OIG) SURVEY OF FARM CREDIT SYSTEM (FCS)
INSTITUTIONS REGARDING THE AGENCY’S EXAMINATION FUNCTION
Introduction
During the period April 1 – June 30, 2014, the Office of Examination identified 11 Farm Credit
System institutions that were in a position to provide meaningful survey responses.
The OIG sent surveys to those 11 institutions on July 25, 2014. Of the 11 institutions surveyed,
6 submitted completed surveys. When outstanding responses from prior quarters are received,
they are included in the next quarterly report. Two responses to the survey issued for the
second quarter of FY 2014 were received and are included in this third quarter FY 2014 report.
Therefore, this report includes a total of 8 responses.
The OIG will continue to provide an email report to you based on each fiscal year quarter-end,
i.e., December 31, March 31, June 30, and September 30, so that you may timely take
whatever action you deem necessary to address the responses. The fourth quarter report as
of September 30 will continue to include fiscal year summary data.
The survey asks respondents to rate the eight survey statements from "1" (Completely Agree)
to "5" (Completely Disagree). The rating options are as follows:
Completely Agree 1
Agree 2
Neither Agree nor Disagree 3
Disagree 4
Completely Disagree 5
There is also an available response of “6” (Does Not Apply) for each survey statement. These
responses are not included in averages.
Narrative responses are provided verbatim, except identifying information has been removed
and any grammatical or punctuation errors may have been corrected. Any narrative in
“brackets” is explanatory information provided by the OIG based on conversations with
institution management.
Survey Results – Third Quarter FY 2014
Average numerical responses to survey statements 1 – 8 were 1.8 to 2.4.
Average Numerical Responses to Survey Statements 1 – 8
rd nd st
3 Qtr 2 Qtr 1 Qtr
1.8 – 2.4 2.0 – 2.2 1.4 – 2.1
October 22, 2014
Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
The average response for all survey statements was 2.0.
Average Response for all Survey Statements
rd nd st
3 Qtr 2 Qtr 1 Qtr
2.0 2.2 1.8
In this quarter, there were more positive than negative narrative comments to survey
statements 1–8. (Negative comments of any degree are color coded in maroon.)
Survey item 9 asks for feedback on the most beneficial aspect of the examination process.
Consistent with prior quarters’ responses to this survey item, many very positive comments
were provided about the examiners and the examination process.
Survey item 10 asks for feedback on the least beneficial aspect of the examination process.
While most were negative, as would be expected, several comments provide a perspective that
should prove constructive.
Survey item 11 asks for any additional comments from the Board as a whole. It elicited a
number of thoughtful responses from full Boards, which was the objective of the question.
Responses to First Quarter Survey Statements 1–8
EXAMINATION PROCESS
Survey Statement 1: The scope of examination activities was focused on areas of risk
to the institution and appropriate for the size, complexity, and risk
profile of the institution.
Average Response: 2.4 Question 1st 2nd 3rd 4th
Average
1 Qtr Qtr Qtr Qtr
FY 14 2.0 2.2 2.4
FY 13 2.0 1.7 1.9 2.0 1.9
FY 12 1.9 2.1 2.1 1.8 2.0
FY 11 1.8 2.0 1.8 1.8 1.9
Comments:
• We always appreciate the scope of the examination to include an evaluation
of risks in our organization, particularly the loan portfolio and credit risk.
This year those areas were covered, but the focus was on standards of
conduct and business continuity.
• As a “financial” institution, it was discouraging to see the examination place
such little focus and emphasis on credit risk. There was far too much focus
on standards of conduct, board elections, etc.
• EIC properly focused the exam team to our satisfaction and the institution's
benefit.
October 22, 2014 2
Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
Survey Statement 2: Examiners appropriately applied laws, regulations, and other
regulatory criteria to examination findings and conclusions.
Average Response: 1.9
st nd rd th
Question 1 2 3 4
Average
2 Qtr Qtr Qtr Qtr
FY 14 1.8 2.1 1.9
FY 13 1.9 1.6 1.8 2.3 1.9
FY 12 1.8 1.8 1.9 2.0 1.9
FY 11 1.9 2.1 1.7 2.4 2.1
Comments:
• Examiners appeared to have applied a written check-list approach. We heard
more than once – your process is not wrong and complies with FCA regulations
but it is not like everyone else does it.
• The certification process the agency has implemented has produced some
talented, knowledgeable, and professional examiners. We are impressed with
their knowledge of our business operations as well as laws and regulations.
• The examiners were well versed on regulation, however, not very familiar with
agriculture, credit, and credit risk.
Survey Statement 3: The recommendations, required actions, and any supervisory
agreement with FCA assisted the board and management in
addressing the risks of the institution.
Average Response: 2.1
Question 1st 2nd 3rd 4th
Average
3 Qtr Qtr Qtr Qtr
FY 14 1.7 2.0 2.1
FY 13 2.0 2.0 1.8 2.2 2.0
FY 12 2.1 2.0 2.4 2.0 1.8
FY 11 1.5 2.0 1.7 1.9 1.8
Comments:
• The required and recommended actions were a laundry list and difficult for the
Board to determine materiality.
• Our Audit Committee and Board always embrace the examination process.
We view examinations as another risk management tool. The examiners make
their findings easy to understand and they respond appropriately to our
questions. We agree with the examination findings and recommendations.
• Again, there seemed to be a disproportionate focus on standards of conduct
instead of what truly constitutes “risk” to our institution.
October 22, 2014 3
Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
Survey Statement 4: The examiners were professional and efficiently conducted
examination activities.
Average Response: 1.8 Question 1st 2nd 3rd 4th
Average
4 Qtr Qtr Qtr Qtr
FY 14 1.4 2.2 1.8
FY 13 1.5 1.3 1.4 2.0 1.6
FY 12 1.7 1.7 1.6 1.8 1.9
FY 11 1.9 2.2 1.8 1.9 2.0
Comments:
• Examiners were very professional but it seemed to management there was
minimal time for the examiners to understand the “why” behind institution
practices.
• The examiners are always professional. The planning of on-site work is well
coordinated and results in little disruption to our ongoing activities.
• The senior examiner on-site was exceptionally professional and level
headed. The rest of the examination team could use a large dose of polish,
common sense, and experience.
COMMUNICATIONS
Survey Statement 5: Communications between the Office of Examination staff and the
institution were clear, accurate, and timely.
Average Response: 2.0 Question 1st 2nd 3rd 4th
Average
5 Qtr Qtr Qtr Qtr
FY 14 1.6 2.2 2.0
FY 13 1.9 1.5 1.4 2.1 1.8
FY 12 1.7 1.9 1.9 2.0 1.8
FY 11 1.4 2.0 1.9 1.8 1.8
Comments:
• There were numerous conversations but it appeared to the institution team
the examination process did not allow the examiners sufficient time to
understand the “why” behind the institution operating processes.
• The communications between examiners and our audit staff, management
and board of directors is efficient and effective. There are never any
surprises and that is good.
• Discussions that were held face-to-face on site did not translate well to the
written report.
October 22, 2014 4
Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
Survey Statement 6: Examination communications included the appropriate amount
and type of information to help the board and audit committee
fulfill their oversight responsibilities.
Average Response: 1.8
Question 1st 2nd 3rd 4th
Average
6 Qtr Qtr Qtr Qtr
FY 14 2.1 2.2 1.8
FY 13 1.7 1.6 1.6 1.9 1.7
FY 12 1.7 1.8 2.3 1.9 1.8
FY 11 1.7 2.0 1.5 1.7 1.8
Comments:
• The in-person meeting between FCA EIC and Director, along with institution
Board and management was a good dialogue and exchange of ideas.
Communications took place during the in-person meeting.
• We really appreciate the time the examiners allow for entrance and exit
conferences with our staff and directors. The examination’s results
presentation with the Audit Committee is very well organized and
professional. In fact, the information presented is very easy to understand
and the examiners provide valuable information and insight into their
findings.
Survey Statement 7: Examiners fairly considered the views and responses of the
board and management in formulating conclusions and
recommendations.
Average Response: 1.9 Question 1st 2nd 3rd 4th
Average
7 Qtr Qtr Qtr Qtr
FY 14 1.8 2.2 1.9
FY 13 1.8 1.6 1.6 2.0 1.8
FY 12 1.8 1.9 2.1 1.9 1.9
FY 11 1.5 2.0 2.1 2.1 1.9
Comments:
• FCA EIC and Director listened and had an exchange of ideas with the
institution Board during our meeting.
• The interaction between examiners and management and board is excellent.
The reasons for a concern or finding is communicated clearly and our
questions are always answered in a way that we understand.
• Agree, however, this was done after reports and findings were issued
instead of on the front end. Better communication while conducting the
examination instead of after the report is issued would be most beneficial.
October 22, 2014 5
Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
Survey Statement 8: FCS-wide guidance from the Office of Examination was proactive
and helpful.
Average Response: 2.0 Question 1
st
2
nd
3
rd
4
th
Average
8 Qtr Qtr Qtr Qtr
FY 14 2.0 2.2 2.0
FY 13 2.6 2.4 1.9 2.1 2.3
FY 12 2.0 1.9 2.3 2.1 1.9
FY 11 1.8 2.0 1.7 1.5 1.8
Comments:
• The focus areas distributed from FCA Office of Examination are beneficial to
the institution Board and management.
• The National oversight activities are shared with the Audit Committee so our
organization can learn from the reviews conducted elsewhere in the country.
Many times the business issues being reviewed are appropriate and specific
to our organization and sometimes the findings are related to activities that
we are not experiencing or the activity is minimal for our organization.
GENERAL QUESTIONS 9, 10, and 11
Survey Item 9: What aspect of the examination process did you find most beneficial?
• The discussion with the FCA EIC and Director.
• We are always looking for feedback concerning risk in our organization and
how well we are managing that risk.
• All beneficial.
• Face-to-face discussions with the senior examiner that was on site was very
beneficial. The supervising officer that assisted in presenting the exam to
the Audit Committee was great as well.
• The examiners were beneficial in providing some understanding of FCA
regulations.
• Ratification of the institution’s business practices, candid discussion with
examiners regarding best practices within the system, and open discussion with
examiners regarding internal processes to make valuable improvements.
• Borrower Rights Requirements/Guidance.
Survey Item 10: What aspect of the examination process did you find least beneficial?
• It appeared to institution management the "matrix" approach utilized to form the
examination teams contributed to a cumbersome examination process. The
examination process/timeframes seemed to have examiners rushed and
minimal time to talk with institution leaders when a process did not exactly
match the FCA check-list. While examiners were onsite they were working on
prior institution examination section summaries plus trying to do onsite work for
the examination. Once the team left onsite there were many calls and emails
asking questions. It seemed difficult for examiners -- while working offsite -- to
October 22, 2014 6
Third Quarter FY 2014 OIG Summary Report on the Survey of FCS Institutions
Regarding the Examination Function
_________________________________________________________________________________________________________
grasp answers to questions if the response did not conform to the FCA check-
list.
• There is great diversity among institutions across the country. At times we are
made aware of activity or situations that transpire in other parts of the country
that have not occurred here or are unlikely to occur here. Many times the
response from the agency is to address or respond to specific local issues with
a system wide response rather than address the issue where the activity took
place.
• Many misunderstandings of questions and answers from the EIC and his staff.
It would have been very beneficial to have had a draft of the final report in
advance to clear up the misunderstandings and confusion.
• Evaluation and testing of items that are compliance-related (regulatory not
consumer lending compliance) but are immaterial to business operations and
pose low risk to our customers and the Farm Credit mission.
• Although necessary for FCA, the large number of new trainees was somewhat
cumbersome on institution staff and senior management.
Survey Item 11: Please provide any comments from the Board as a whole regarding the
examination process not provided in the preceding responses.
• The institution Board felt that the examiners listened to their comments and that
discussion was encouraged and appreciated.
• It would be helpful if more clarity would be provided with regards to examination
activity when new regulations are implemented. With the examination modules
coming long after effective dates of regulations, it makes it very challenging to
ensure compliance.
• The board thanks FCA for its guidance and assistance.
• As Audit Committee Chair, the examination process seemed to be effective and
beneficial to the institution as noted above. The reporting by the examination team
was clear and helped the board to understand the areas reviewed and the
recommendations that resulted with clear context and reasoning. Further, our EIC
was receptive to suggestions and ideas to improve the examination in the future.
• The Board felt it was a little cumbersome having the summary of examination
done by conference call with the entire Board AND in person at a regular Board
meeting.
October 22, 2014 7